Market movers today
In the US, ISM manufacturing is due out today. It has been very high for a long time compared to both hard data and the Markit PMI manufacturing index. It remains our base case that ISM will fall over in the coming months and we expect that the index was 57.3 in August versus 58.1 in July.
In the UK, BoE Governor Mark Carney, Chief Economist Andy Haldane and MPC members Silvana Tenreyro and Michael Saunders testify before parliament’s Treasury Committee today. Watch out for any comments on whether to expect further hikes in the short term. We think the next hike is unlikely to occur before May.
In Denmark, we get currency reserves data this afternoon. We are not far from the levels at which Danmarks Nationalbank has previously intervened in support of the Danish krone. As we still did not reach that level in August, we think Danmarks Nationalbank did not intervene last month.
Selected market news
While the US was closed for Labour Day, emerging markets were put to work amid thinner-than-usual USD liquidity, with both Argentina and Turkey testing investor confidence.
Turkish data showed yesterday that inflation accelerated to 17.9% y/y in August – the highest level for 15 years and far from the target of 5%. This led the Turkish central bank (TCMB) to announce that it will ‘adjust’ its policy at its meeting next week, and we now expect a rate hike. TRY remains vulnerable in our view though, as markets sense that any action will be ‘too little, too late’ to stem the lira. Indeed, we doubt that president Erdogan will be willing to accept a rate hike of the 600-700bp at least that we deem is required to turn sentiment around, as he likely fears its adverse consequences for growth.
Later in the day, Argentina’s president Macri presented a large package of austerity measures in a renewed attempt to stem the currency crisis. Macri acknowledged that foreign investors were signalling his country has been ‘living beyond its means’, but a seeming lack of coordination with the IMF – which is already heavily involved in Argentina – served to limit the immediate effect on markets from the new measures. That said, the announced tax on exporters could bring some relief to the ARS down the road in our view.
Overnight, the Reserve Bank of Australia (RBA) held its cash target rate unchanged at 1.50% as widely expected, which led to a jump in AUD/USD on slightly hawkish comments from Governor Lowe. Equities were mixed in Asia and US equity futures trading alike. Similarly, futures trading also hinted at only small moves in US Treasury yields.
This morning, the Maklarstatistik revealed that Swedish house prices were unchanged on the month in August; apartment prices rose 1% during the month. We still see the Swedish property market being under pressure near term and being a hindrance for the Riksbank. Indeed, the Riksbank may delay the timing of its first hike later this week.
